Canada: Canadian Tax Implications Of Hiring U.S. Contractors To Perform Work In Canada

Last Updated: November 2 2011
Article by Jean-Philippe Couture

Most Read Contributor in Canada, September 2016

Many Canadian companies hire contractors from south of the border to perform services in Canada. The last edition of the Labour and Employment News featured an article reviewing some of the basic immigration implications that should be considered before having an employee based in the United States perform work in Canada. This article focuses on the tax implications in such a situation. Canadian employers are well advised to consider such implications in advance of engaging American contractors.

There are Canadian income tax implications even when a foreign worker is only in Canada for a relatively short period of time. It does not matter whether the worker comes to work in Canada as an employee of a company from the United States or to perform services in Canada as an independent contractor.

Income derived by a non-resident of Canada from employment in Canada will generally be subject to tax withholding upon the same deduction tables applicable to Canadian residents. Pursuant to section 153 of the Income Tax Act (Tax Act) and Regulation 102, an employer resident of the United States is required to withhold Canadian payroll deductions from salary or wages, including taxable benefits, paid to employees performing services in Canada. The expression "performing services in Canada" is interpreted broadly to include not only those employees who are in regular and continuous employment in Canada, but also those who are physically present in Canada for work. Canadian payroll deductions are required in all circumstances unless the non-resident obtains a waiver of tax withholdings and the non-resident employee is generally required to file a Canadian tax return by April 30 of the following year.

In certain circumstances, the tax treaty between Canada and the United States may provide relief from Canadian tax deductions, but the non-resident employer and employee need to jointly apply for a waiver of tax withholdings. As soon as it is known that the employee will work in Canada, the employer and employee should apply for a waiver of tax withholdings, as retroactive waiver applications are generally not allowed. Waivers will be effective at the starting date of services provided by the employee in Canada or 60 days before the date of the application.

In the case of independent contractors, section 153 of the Tax Act and Regulation 105 provide that every person, resident or non-resident of Canada, paying a fee, commission or other amount in respect of services rendered in Canada must withhold and remit to Canadian tax authorities 15% of such payment. This includes payments for independent personal services and management fees, except remuneration from an office or employment, which is generally subject to the above Regulation 102 withholding. A Regulation 105 withholding is required for any payment made by the Canadian company to a non-resident person (individual or corporation) for services rendered in Canada, unless the non-resident provides a valid withholding tax waiver issued by the Canadian tax authorities or if the payments relate to a reasonable reimbursement of expenses incurred by the non-resident.

Again, the tax treaty between Canada and the United States may provide, in certain circumstances, an exemption from the Regulation 105 withholding, but the recipient needs to apply for a waiver. A non-resident may apply for a waiver under similar conditions to the Regulation 102 waiver. Otherwise, if the amount of tax withheld exceeds the actual Canadian tax liability, such excess may be recovered by the non-resident by filing a Canadian tax return and claiming a treaty exemption.

The Canadian company may also be required to withhold additional amounts on remuneration, fees, commission or other amounts, including taxable benefits, paid to a non-resident for employment or services rendered in the province of Québec.

In some circumstances, both a Regulation 102 and a Regulation 105 waiver may be needed (for example, where a United States corporation pays a United States worker). The Canada Revenue Agency has recently been reassessing taxpayers who fail to obtain waivers in advance. Reassessments in this area can be particularly harsh because those who pay a United States entity or United States employee are obligated to pay the prescribed withholding amount (plus penalties and interest) and the overpaid tax can only be reclaimed after the non-residents who received the payment file Canadian returns and are assessed. This can be a slow and expensive process and would often be done on behalf of workers who are no longer current employees.


Before a Canadian company hires a non-resident contractor to perform services in Canada or requests an employee from the United States, the company will need to consider what withholdings are required prior to making any payments and whether or not a waiver of tax withholdings is available. The waiver application should be made by the non-resident company or contractor as soon as it is known that work will be performed in Canada. If a waiver has not been applied for and approved, the Canadian company should withhold and remit Canadian tax pursuant to Regulation 102 or 105. As soon as Regulation 102 or 105 tax withholdings are required, the non-resident should file a Canadian tax return. In any case, if the amount of tax withheld exceeds the actual Canadian tax liability, such excess may be recovered by the non-resident by filing a Canadian tax return but this may result in a much longer waiting period.

About BLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.